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Synthetic biology and renewable oils manufacturer Solazyme announced that it successfully conducted multiple initial fermentations in 500,000 liter fermentors in December 2012. While it was a big step forward in the right direction, I think the announcement was a bit premature. By "multiple," the company meant two and by "commercial scale production metrics," the company meant that only partial data had been collected. By reading SEC filings, investors can learn that the company has yet to prove microbial productivity at volumes greater than 128,000 liters. Not at all a nail in the coffin, but since the company believes it needs to reach 625,000 liter fermentors to be profitable, it is clear that engineers have plenty of work ahead of them.

I imagine the company has made headway since its initial press release, especially with commissioning for its Moema, Brazil, biorefinery looming. When updates are given on commercial achievements in the months ahead, will you be able to digest the important information that affects your investments? Heading into the homestretch of the first wave of commercial buildout, it is crucially important to understand what Solazyme, Gevo , and Amyris spill in press releases -- and the greater detail given in SEC filings.

In the next few weeks, I will try to give you more tools for your investing toolbox by explaining the basics of the industry. First up is a brief guide of how industrial biotech companies approach product commercialization and three terms you need to know.

Step 1: Find market. Step 2: Disrupt.If only it were that easy. What exactly does product commercialization entail? A brief rundown in chronological order from whiteboard to fermentation scale up.

Identify suitable commercial products with defined markets.

Identify and manipulate biological pathways of microbes to create the product (molecule).

Whether or not the fermentation product created in the final step is the end product depends on the application. Solazyme can create tailored oils during fermentation, which require minimal downstream processing and separation. Therefore, tailored oil commercialization would incorporate end-product specifications into the four steps above. Amyris, on the other hand, will initially create a building block molecule called Biofene (farnesene) during fermentation, which can then be chemically synthesized into any number of end products independent of the platform. Gevo's isobutanol will also be modified independently of its platform, although it doesn't have quite the reach of Biofene. That is quite all right, as I believe the company has drawn up a formidable business strategy.

When Solazyme talks about product development with partners such as Mitsui, it takes care of the steps outlined above, while Mitsui helps define product specifications that are desired by customers. The same goes for Amyris and Total and Gevo and Toray as well as other commercialization partners for the companies. Additionally, Solazyme gets fermentation help from partner Archer Daniels Midland , an important mentor for the developing company. The company is one of the leading ethanol producers in the country, so it has a wealth of knowledge in coaxing microbes into fermentation machines.

Know these terms!Creating an economical process at commercial scale requires the optimization of three important metrics:

Yield: The amount of fermentation product created with a given amount of sugar. Simply put, efficient microbes reduce input costs.

Productivity: The rate at which product is created by microbes. Faster fermentation allows for enhanced process scheduling and more batches of product per year.

Titer: The concentration of product in the bioreactor. Filling up a 10,000 bioreactor every two weeks to only produce 100 liters of product won't keep the lights on.

Additionally, engineers need to minimize the amount of product lost during recovery and synthesis (if needed) and process scheduling time. The latter can significantly improve a biorefinery's capacity. Consider how slashing two to four days off of a bioreactor's operating time -- through microbial or mechanical improvements -- can impact annual production.

Engineering Year

Bioreactor Turnaround Time

Batches Per Year

325 days

16 days

20

325 days

14 days

23

325 days

12 days

27

In the best-case scenario above an additional seven batches could be squeezed out of each bioreactor in a facility. For instance, a facility with six 500,000 liter bioreactors would see batch capacity increase by an extra 21 million liters per year -- enough to increase a Solazyme biorefinery's capacity by nearly 20,000 metric tons. It may seem like a long shot to cut production time by 25%, but I wouldn't bet against advances in synthetic biology, creative young engineers entering the industry, or the evolution to continuous processes.

Thanks to selling prices, not all products are created equally. For instance, Solazyme announced that it has increased the level of myristic acid in its myristic oil profile to 60%. That may not seem like an incredible feat of science, but consider that that is 400% more than "natural" sources of the compound. Additionally, selling prices for myristic acid averaged $3,700 per metric ton in 2012. Here's a quick sketch showing how selling prices can absorb less-than-stellar product yields.

Source: Solazyme.

I explained the difference between bioreactor volumes and realized product volumes earlier this year, so I won't bludgeon you with the details again. But you can see the general trend from the visual above. Increasing the level of a target fatty acid in an oil profile will lead to greater economics, while the opposite will result in tighter margins. Such improvements can have a big compounding effect when combined with falling production costs. You can also see that high-volume, low-margin products such as fuels will need to be highly concentrated to be economically feasible.

Foolish bottom lineThe three terms highlighted above should help in reading future press releases or SEC filings when companies choose to disclose such production metrics. They should also help provide a more complete picture of the industrial biotech industry for investors. The next several quarters are especially critical for Solazyme, Amyris, and Gevo -- all of which are ramping production at key facilities, building new facilities, and on the verge of launching new bio-based products to the market. There is plenty more ground to cover, however, so next week we will break down commissioning and ramp up schedules for the industry. As always, let me know if you have questions in the comments section below.